Chapter 4

Question 1

Does an expression of acceptance create a valid contract even if it contains additional terms?

Answer 1

Yes, unless the acceptance was expressly conditioned on the offeror’s agreement to the offeree’s terms.

Question 2

When are oral contracts for the sale of goods over $500 enforceable?

Answer 2

1) Buyer receives partial delivery.
2) Buyer makes partial/full payment.
3) Goods are custom made for buyer and a substantial commitment to manufacturing/obtaining the goods was made.

Question 3

Risk follows the title except:

Answer 3

When the buyer agrees to pick up the goods at the seller’s place of business or home. If a merchant, risk passes to buyer when buyer receives goods. If a private party, risk passes to buyer when the seller completes delivery.

Question 4

When does the risk of loss pass to the buyer when the goods are non-conforming?

Answer 4

When the deficiency is remedied or the buyer accepts the goods.

Question 5

Define FOB place of shipment.

Answer 5

Seller brings goods to shipper at seller’s risk and expense.

Question 6

Define FOB place of destination:

Answer 6

Seller brings goods to final destination at own risk and expense.

Question 7

Define FAS vessel

Answer 7

Seller delivers goods to shipping vessel at own risk and expense.

Question 8

Define FOB vessel:

Answer 8

Seller loads goods on vessel at own risk/expense.

Question 9

Define CIF:

Answer 9

contract price includes cost of goods, insurance and freight.

Question 10

Define CAF:

Answer 10

contract price includes cost of goods and freight.

Question 11

When do buyers have no right to inspect goods?

Answer 11

1) COD

2) Contract requires payment upon delivery of the document of title

Question 12

Delivery time is usually considered “resonable time” unless:

Answer 12

The seller agrees to a greater obligation i.e. “time is of the essence.”

Question 13

When is delivery of non-conforming goods not considered a breach?

Answer 13

1) Seller tells buyer the shipment is an accommodation to the buyer.
2) The seller notifies the buyer of an intention to ship nonconforming goods

Question 14

When does a warranty extend to a buyer’s family and guests?

Answer 14

When it is reasonable that the person would use or be affected by the goods.

Question 15

What are the three types of express warranties?

Answer 15

1) Statement of fact about the goods is a warranty that the goods confirm to that standard
2) A description of goods is a warranty that the goods conform to that description
3) A contract based on a sample or model is a warranty that the goods will conform to that sample.

Question 16

When is a warrant of merchantability implied?

Answer 16

When the seller is a merchant.

Question 17

What does merchantable mean (under the implied warranty of merchantabliity)?

Answer 17

1) up to trade standards
2) of average quality for their kind, if fungible
3) fit for their ordinary purposes
4) of reasonably consistent quality
5) as decscribed on the label

Question 18

What does fungible mean?

Answer 18

mixable or interchangeable. Ex. wheat … 2 farmers could mix wheat and it wouldn’t be distinguishable.

Question 19

What is a warranty of fitness for a particular purpose?

Answer 19

Goods are fit for their particular intended use if the buyer relied on the seller’s help in selection.

Question 20

What is a warranty of title?

Answer 20

The title conveyed is good, its transfer is rightful, and the goods are free fromany undeclared lien.

Question 21

What does a buyer have to do before suing for breach due to nonconfirming goods?

Answer 21

The buyer must give the seller reasonable notice of rejection, stating the particular defect.The seller may correct any defect.

Question 22

What can a buyer do if nonconforming goods are received and the seller doesn’t correct the defects or give disposition instructions?

Answer 22

The buyer may store, return, or sell the goods on the seller’s behalf.

Question 23

When can a buyer accept and later reject goods?

Answer 23

1) Reasonably assumed the defect would be cured.
2) Defect was not discovered before acceptance
3) The defect was difficult to discover and the seller actively induced the acceptance by his assurances.

Question 24

What are the three excuses for nonperformance of a sales contract?

Answer 24

1. Loss of identified goods (destroyed before sale)
2. Substituted performance (reasonable substitute of delivery commercially impracticable)
3. Failure of a presupposed condition (commercially impracticable or stopped by govt regulation … impracticablility has to be caused by unexpected contingency that affects a condition that both parties assumed would continue)

Question 25

What are a seller’s remedies for breach of contract if a buyer wrongfully rejected goods or failed to make payment?

Answer 25

1) withhold or stop delivery
2) sell unfinished goods as scrap
3) resell finished goods and recover damages equal to the contract price less market price plus additional collection costs less expenses saved and

Question 26

What are a seller’s remedies for breach of contract if a seller discovers the buyer’s insolvency?

Answer 26

The seller may withhold or stop delivery unless paid
in cash or reclaim goods delivered while the buyer was insolvent, subject to the rights of good faith purchasers and lien creditors.

Question 27

What are a buyer’s remedies for breach if a seller failed to deliver?

Answer 27

The buyer may buy substitute goods and recover the difference between the contract price and the market price.

Question 28

What are a buyer’s remedies for breach if a buyer accepted nonconforming goods?

Answer 28

He may recover the difference in value between ‘perfect’ and ‘inferior’ goods and any foreseeable loss resulting from the nonconformity.

Question 29

What are a buyer’s remedies for breach if the buyer can’t find substitute goods?

Answer 29

He may seek the judicial remedy of specific performance (force the seller to deliver the goods).

Question 30

What is a negotiable instrument?

Answer 30

a written instrument that lets parties pay at a future time.
Commercial paper must be negotiable (readily salable) so that the seller can sell the negotiable instrument and does not have to wait for payment.

Question 31

What does the UCC sec. 3 say an instrument must be in order for it to be negotiable?

Answer 31

1. be in writing,
2. be signed by the maker or drawer,
3. contain an unconditional promise or order to pay a sum certain in money,
4. not contain any other promise or obligation,
5. be payable on demand or at a definite time, and
6. be payable to order or bearer.

Question 32

What are the four types of commercial papers subject to the UCC (all negotiable)?

Answer 32

1) CDs
2) Notes
3) Drafts
4) Trade acceptances

Question 33

A two-party draft used when a buyer can’t provide cash to the seller until he resells the goods.

Answer 33

Trade acceptance

Question 34

What rights does a new holder of a negotiable interest have?

Answer 34

The same rights of the original holder. They have the same defenses the original holder had.

Question 35

When an endorses signs his name only, 1) what is it called? 2) negotiability?

Answer 35

1) blank/general endorsement OR unqualified endorsement

2) The endorser must pay the instrument to any subsequent bearer. Liability is NOT limited

Question 36

When an endorser signes “pay to” or “payable only to,” 1) what is it called? 2) negotiability?

Answer 36

1) special endorsement

2) can’t be negotiated unless the person whom it was payable to endorses it.

Question 37

When an endorser signs “for deposit only,” 1) what is it called? 2) negotiability?

Answer 37

1) restrictive (collection) endorsement

2) non-negotiable

Question 38

When an endorser signs “without recourse,” 1) what is it called? 2) negotiability?

Answer 38

1) qualified endorsement

2) liability to subsequent holders is limited if the instrument is later dishonored

Question 39

What is a holder in due course?

Answer 39

Takes negotiable interest:

1) for value
2) in good faith
3) without notice that it is overdue or has been dishonored or of any other defense against it or claim to it by any person.

Question 40

What could a holder in due course still lose the negotiable instrument due to?

Answer 40

Real defenses (based on the existence of the instrument) such as duress, incapacity, illegality or discharge in bankruptcy.

Question 41

What are the requirements for a valid title?

Answer 41

1) created by Bailee as receipt for goods received
2) contract for shipment or storage of goods
3) if negotiable must have statement that:
- holder has right to receive, hold, and dispose of the goods and/or the document of title.
- the buyer of the title receives the title free of claims and defenses of prior parties.

Question 42

Which 9 items does a warehouse receipt have to contain?

Answer 42

1) location
2) issue date
3) receipt #
4) who goods will be delivered to at end of storage
5) rate for storage and handling
6) description of goods or packages
7) signature of warehouse operator
8) statement of ownership if warehouse operator owns or partially owns the goods
9) amount of advances made or liabilities incurred for which the warehouse operator claims a security interest.

Question 43

What is a bill of lading?

Answer 43

Written contact between shipper and the carrier.

Question 44

What are the 5 elements to a secure transaction?

Answer 44

1) debtor
2) secured creditor
3) collateral
4) security agreement
5) security interest

Question 45

What is a pledge?

Answer 45

Security device in which the lender holds the collateral as security until the loan is paid.

Question 46

What is a chattel mortgage?

Answer 46

Mortgage on personal property in which the debtor is allowed to keep possession of the property while the creditor keeps the right to take ownership if the debtor defaults.

Question 47

What is a conditional sale.

Answer 47

Buyer takes possession if property after making a down payment and agreeing to make periodic payments.